IRS Form 8606 - need help please

[John the third]

I've done back-door ROTHs every year since 2014. For 2014-15, the TaxCUT software generated the Form 8606. I recently noticed when I started using TurboTax in 2016, no 8606 form was generated (perhaps due to my using the software incorrectly). Prior to 2014, I never contributed to an IRA (always had 401k access). So, basically, each year I would contribute $5500 ($6500 when I turned 50) and convert it to ROTH immediately. I know I can always file 8606 forms for prior years and I know there's a $50 penalty. My question is... why do I need to file one given that each year my beginning and ending basis in the IRA is $0 and I have no other IRA accounts? Should I file the 8606s for 2016/2017/2018 or not? (I plan to file one for 2019). Advice much appreciated.

 

[kjpliny]

I'd like to know a definitive answer to this as well. I've been doing back door Roth contributions for years and I don't have much documentation other than a spreadsheet keeping track of total non-deductible IRA contributions which started for tax year 2005. I always contributed the max, so my Roth basis through 2019 is $78k. I know a bunch of past tax returns included 8606s but the non-deductible IRA basis was always 0 after the conversion. I don't believe it really matters since I don't plan to tap the Roth until after age 59.5 at which point there is no need to segregate out basis vs conversions vs gains.

 

[SevenUp]

See https://www.irs.gov/pub/irs-pdf/i8606.pdf under "Who Must File" and make your own determination.

Previous versions can be found at Prior Year Form 8606.

Haven't heard of anyone who sent in previous years' version being charged $50.

 

[kaneohe]

............................. I don't believe it really matters since I don't plan to tap the Roth until after age 59.5 at which point there is no need to segregate out basis vs conversions vs gains.

I guess you have to weigh the minimal (IMHO) effort to do it by the book to the possible consequences if you don't. What you say above it is true but what happens if circumstances change.........you need to tap early or perhaps your heirs have to tap early. Or maybe IRS decides you will be the first to be penalized the $50 for not filing. Or maybe IRS decides you should be charged for the conversion since no basis was involved. The odds seem remote of these things happening but why not remove all possibility if the work involved is minimal?

You may want to consider doing the forms by hand. That way there is no misunderstanding between you and machine about what should happen.

 

[cathy63]

See https://www.irs.gov/pub/irs-pdf/i8606.pdf under "Who Must File" and make your own determination.

Previous versions can be found at Prior Year Form 8606.

Haven't heard of anyone who sent in previous years' version being charged $50.

The penalty info is in the instructions you linked:

Penalty for Not Filing
If you are required to file Form 8606 to
report a nondeductible contribution to a
traditional IRA for 2019, but don’t do so,
you must pay a $50 penalty, unless you
can show reasonable cause.

John and kjpliny -- yes, you are required to file an 8606 if you made a non-deductible contribution to a tIRA or if you converted part or all of a tIRA to a Roth (or if you did both in the same year, which is your situation). You should have received a 1099-R from the tIRA custodian with a code "2" in box 7, and when you enter that data into TTax it will ask what you did with the money. Choose the option that says you converted it to a Roth IRA and TTax will automatically generate the correct 8606 for you.

I am a little surprised that the IRS hasn't generated one of their automatic letters asking about the 1099-R that you didn't report, but maybe they don't bother if it's got a code 2 on it. It seems unlikely that they are going to dig into old returns for no reason, especially if it there's no reason to suspect that you underpaid the tax due, so I'd probably just let the past go and do it right from now on. If they ever do complain, you can apologize for the oversight and request a waiver of the penalty.

 

[SevenUp]

The penalty info is in the instructions you linked:

Quote: Penalty for Not Filing
If you are required to file Form 8606 to
report a nondeductible contribution to a
traditional IRA for 2019, but don’t do so,
you must pay a $50 penalty, unless you
can show reasonable cause.

Right. The point is that I'm not aware of anyone being charged $50 for sending an 8606 in late, even many years late.